The Agenda

Thinking Through the Employer Mandate

The Obamacare employer mandate has been delayed yet again. Defenders of the law consider this a non-event, not least because many of them think the employer mandate should be scrapped. So why does the delay matter at all?

The Affordable Care Act aims to expand insurance coverage by greatly expanding eligibility for Medicaid and creating a new system of sliding-scale health insurance subsidies for people who are have not received health insurance offers from an employer that the federal government considers acceptable (in terms of the actuarial value and terms of coverage) and affordable (in terms of out-of-pocket cost as a share of income). The importance of limiting health insurance subsidies to those who haven’t received such an offer of employer-sponsored insurance (ESI) can’t be understated, as the tax subsidies that flow to people with ESI who earn modest incomes are expected to be substantially smaller than the the subsidies that will flow to such people on the exchanges. Though it is widely recognized that ESI is on the decline, for a variety of reasons, many Americans have feared its rapid unraveling, as most insured non-elderly Americans are covered by ESI and wary of navigating a new system. One of the tools designed to help preserve ESI was the employer mandate, a requirement that all business enterprises 50 or more full-time-equivalent employees either make a qualified insurance offer to their full-time employees, or pay a fine.

The structure of the fine is somewhat complex, as Avik Roy has explained. Basically, firms that offer insurance options that don’t quite match the ACA’s standards for what counts as an acceptable plan but that pass a lower minimum threshold will pay $3,000 for all employees who enroll in the exchanges. If these so-called “skinny” plans prove appealing, and cheap, enough to deter workers from enrolling on the exchanges, firms will wind up paying relatively little in penalties. Firms that don’t offer insurance at all will pay a $2,000 penalty for all full-time equivalent employees less 30, a sum that could wind up being much larger than under the former scenario. This is why Ben Wanamaker and Devin Bean describe the employer mandate as one of the provisions of the ACA that might actually facilitate disruptive (or low-cost) innovation that will make health insurance more affordable — employers will be strongly incentivized to develop cheap medical care options that are more appealing to their employees than the subsidized exchanges.

That said, there are serious downsides associated with the employer mandate. The ACA defines a full-time employee as one who works 30 hours a week or more, so the employer mandate might inhibit hiring by raising its effective cost. Many smart people, on the left and the right, are opposed to the employer mandate primarily on the grounds of its potentially deleterious labor market impact. But so far, we haven’t had a chance to find out, as the Obama administration has delayed enforcement of the employer mandate, which was supposed to take effect in January of this year. First, the White House delayed enforcement for a year. Recently, the Treasury Department delayed enforcement for another year for firms that employ up to 100 full-time-equivalent employees, and larger firms won’t be subject to the full brunt of the penalty that first year. One way of looking at this new rule change is that the White House is simply applying the brakes, and giving businesses an opportunity to adapt to the new regulations. Another interpretation is that the employer mandate is on its way to the dustbin of history, and the Obama administration is just delaying the inevitable, perhaps because it fears the consequences of allowing the law to be meaningfully revised by Congress. Obamacare is a delicate latticework; if lawmakers, particularly Democratic lawmakers who are being dragged down by its unpopularity, see that unpopular provisions are vulnerable, it’s not crazy to imagine that the law could be whittled away.

The delay of the employer mandate complicates many other aspects of the law. Because people who have received a qualified health insurance offer from an employer are not eligible for subsidized coverage on the exchanges, the federal government needs to know if you’ve received such an offer or not before it can allow you to access subsidies. Or at least that’s the theory. In the absence of employer mandate enforcement, the federal government doesn’t have reliable data on whether or not people applying for health insurance subsidies have received a qualified offer or not. It might also make it tough to enforce the individual mandate penalty.

As a general rule, conservatives dislike the employer mandate, and it is easy to see why. Now doesn’t seem like the right time to make it harder for businesses to expand their payrolls. Yet the incentive for providing “skinny coverage” options is intriguing, as it gives entrepreneurs an opportunity to devise new care delivery models. Without an employer mandate, it’s not clear how businesses and consumers can break out of Obamacare’s regulatory morass, particularly if the only insurance products that allow you to avoid being subject to the individual mandate penalty are tightly regulated. The main virtue of the Burr-Coburn-Hatch alternative to Obamacare is arguably that it is far more conducive to the development of new models for health insurance and medical care.


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